Verizon faces final regulatory hurdle in cable deal

Verizon Wireless faces one last regulatory hurdle in its bid to buy cable spectrum in a deal valued at $3.9 billion: the Federal Communications Commission.

Earlier this week, Verizon and the cable companies involved in the deal won approval from the Department of Justice. But the approval didn't come without strings. Verizon and the cable companies were required to scale back certain parts of their commercial agreements in an effort to satisfy anticompetitive concerns that the DOJ and the FCC had with the deal.

Verizon has also already agreed to sell some spectrum to competitor T-Mobile USA in exchange for getting the deal completed. So what else is left for Verizon to give up in order to bring this deal over the finish line?

Now the company has agreed to accelerate its build-out timeline for the spectrum and it's also agreed to allow competitors to roam onto its data network. A year ago, the Federal Communications Commission passed rules requiring wireless operators to offer roaming agreements to smaller competitors at reasonable rates. But Verizon has been fighting the agency in court to strike these rules.
Verizon, which has a total of 68 data-roaming agreements already, has argued that such a requirement is not necessary and out of the FCC's jurisdiction. But smaller wireless operators say rules are needed to ensure they can compete with larger operators.

"There are several smaller operators that simply can't get roaming agreements with AT&T and Verizon," Steve Berry, head of the Rural Cellular Association, which represents smaller carriers, said in a recent interview. "Even though AT&T and Verizon make money on those agreements, they still refuse to do deals with some carriers."

Berry and consumer advocates, which have also opposed the deal, have been pushing the FCC to make data roaming a requirement in order for the agency to approve the sale of the cable spectrum to Verizon. These groups argue that if Verizon is going to get its hands on even more spectrum, which it plans to use in building its 4G LTE network, then it must agree to share those network assets with smaller carriers.

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Verizon appears to be willing to concede on this point. In a filing with the FCC on Wednesday, Verizon said it would voluntarily offer data roaming on the spectrum it plans to acquire to other carriers at reasonable rates. The company also promised to adhere to a speedier build-out timetable than is currently required under the Advanced Wireless Service spectrum auction rules.

Verizon, which is also acquiring some spectrum from T-Mobile and Leap Wireless, which runs the regional prepaid carrier Cricket, said it would serve 30 percent of the population covered by all the spectrum it plans to acquire as part of this deal within three years. And within seven years, it will cover 70 percent of the population living in areas where these spectrum licenses could offer service.

Verizon's commitment to data roaming will be for five years, according to the filing.

This isn't the first time Verizon has voluntarily agreed to concessions in order to get this deal completed. The company responded to critics who said Verizon would control too much wireless spectrum by buying the cable companies licenses by offering to sell off blocks of its existing spectrum assets.

In the spring, it announced a plan to sell wireless spectrum in the 700MHz band in the A and B blocks. And then in June it struck a deal with T-Mobile to sell some of its AWS spectrum.The deal also allowed Verizon to swap some of its licenses for licenses T-Mobile held in certain markets.

Verizon appears to have struck the deal with T-Mobile in response to concerns the FCC had with the deal as it was reviewing the spectrum license transfer. And the company took it upon itself to structure a swap on its own rather than be forced through an FCC-mandated divestiture of the spectrum.

Officials at the FCC have acknowledged that Verizon's handling of this issue was somewhat unusual. But the agency seems pleased that Verizon came up with an innovative solution to the problem.

Now it seems Verizon is once again trying to make concessions instead of being forced to do so.

FCC Chairman Julius Genachowski seems happy with the efforts Verizon has made thus far. And he's circulated an order to the other four commissioners recommending that the deal be approved. He said in a statement after the DOJ announced its settlement with Verizon and the cable companies over the commercial arrangements that the "modified transaction will promote the public interest and benefit consumers in several ways." Calling Verizon's voluntary divestiture of spectrum to T-Mobile "unprecedented," he said he would urge his colleagues to approve the license transfer.

"Approval of the substantially modified transaction will promote the public interest and benefit consumers in several ways," he said. "(Most importantly,) it will put approximately 20 megahertz of prime spectrum -- spectrum that has gone unused for too long -- quickly to work across the country, benefiting consumers and the marketplace."

The five FCC commissioners must vote on the spectrum transfer in order for the deal to be finalized. And in all likelihood they'll approve the transaction. But the big question is whether the spectrum divestiture to T-Mobile, and Verizon's promise to speed up network deployment and allow for data roaming, will be enough. There's a chance the FCC could include other conditions.

Critics of the deal say they're pleased with the changes negotiated through the DOJ settlement, but they're hoping the FCC will also put conditions on the merger that they expect will preserve competition.

"The Department of Justice has addressed some of the worst parts of this transaction," Senator Al Franken (D-Minn.) said in a statement. "But I don't think it has gone far enough. The FCC needs to stand up for consumers and address the lack of competition for high-speed broadband before it votes to approve this deal."